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Using Specialized Software for Profitable Reverse Logistics

by Larry Laux, Senior Vice President, IFS North America

Reverse Logistics Magazine, Edition 53

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Over the last 30 years, enterprise software has emerged as a powerful force for profitability assurance in business. But with almost 1 percent of the economy linked to product returns, it is surprising that more software options do not fully address the reverse logistics process.

This may be because many software vendors have a poor understanding of reverse logistics. The needs of the reverse logistics space are subtle and complex. A deep industry knowledge and commitment are required to fully develop software that encompasses the entirety of this underappreciated discipline.

As I interact with people at events like those held by the Reverse Logistics Association, I have found that a number of companies are looking for a comprehensive solution for the industry, but more often than not are forced into one-off development programs. These are costly and involve a great degree of risk.

So let’s take a quick look at a few of the unique types of functionality that reverse logistics software must offer and how they can affect profitability of a reverse logistics operation. In a software selection process, these are the things that a company ought to look for in commercial-off-the-shelf product – or plan to develop on their own.

Tracking through the service chain

Customers with far-flung channels of distribution will accept returns at retail locations. They must rely on reverse logistics software to log who brought the unit in and make an initial assessment of the problem. If they have a multi-layered service operation, they will do an initial check right at the retail site to see if they can make a diagnosis and a simple fix. But if they are not able to resolve the problem, they often send items to a regional service facility – their own or a third party’s.

If the problem cannot be solved at the regional service facility, the item might then need to go to the original equipment manufacturer (OEM). Reverse logistics software must track the unit through the service chain and record that those units are out in someone else’s hands. This is, after all, valuable property, property that could be the owned by the customer or could be owned by the service provider.

Warranty Management

The OEM might supply a warranty that is either in force for a longer or shorter period than the one offered by the retailer. Facilitating millions of dollars in warranty reimbursements is one way reverse logistics software can drive profitability. The software can provide data to prove that units were acquired on a particular day, and are therefore still within the OEM warranty.

Outside service provider management

Complexity increases further when it extends beyond a company’s own service organizations to third parties like contractors, subcontractors or distributors that participate in aftermarket support. A company using reverse logistics software may have a dealer network. Software for reverse logistics needs to take into account the nature and quality of that business relationship and administer reverse logistics processes accordingly. When there is a good business relationship with that outside entity, we can set up business rules in the software to advance replacement parts to them when they simply notify us that they are sending the repairable units through a return material authorization.

When the replacement parts are advanced to the dealer or contractor, the system still needs to keep track of whether they did in fact send units back. So it is important to have business rules that specify that this distributor gets, for instance, up to 10 days to send the defective subassemblies back. When that date is at risk of passing, the system should send a notification to the right individuals to ensure the parts come back into inventory. Keeping track of this level of reverse logistics interaction between trading parties on a manual basis or even in some computerized systems not specifically designed for the task is impossible. The ability to avoid losing track of products in a reverse logistics value chain obviously makes for a more profitable reverse logistics operation.

Streamlined depot repair

Reverse logistics software can also streamline work in the depot repair environment through the use of visualization -- videos or drawings that demonstrate to the repair technician how the work is to be performed (figure 1). The software may provide a short video or tutorial to the engineer on the bench. We can illustrate how a given component is disassembled, how you would do a preventive maintenance cleaning, or make a required adjustment. So we are able to take someone who is perhaps not as skilled on a product and let them, through the use of these visualization tools, get a quick tutorial so that they can actually work on products even as they are getting over their learning curve.

When software accommodates the reverse logistics process to this extent, a company can get much more productivity out of their engineers then they could before, which again improves profitability.

Decision support

Advanced reverse logistics software should also account for the economic cost of repair, which allows better decision-making about repair processes. Software used for reverse logistics ought to allow a company to establish a cost, oftentimes in order to generate a quote to the customer. But once enough data has built up in the system, we can establish economic costs based on historical work. Once the repair activity on a unit has reached this point of economic costs, we can reevaluate if the part is economically worth repairing. At some point, it might be better and more cost effective, just to send a new unit to the customer. But to make that decision, we need the software to track what we have used in parts and in labor. If the cost gets to a certain tipping point, the system can throw up a red flag asking that we stop and not work on the repair without swapping the defective unit or getting approval from the customer for additional repair work.


Automation of key business processes is imperative in a very competitive economy. And if reverse logistics is mission critical for your operation, or just a discipline that represents an opportunity for greater margin, specialized software can help you unlock that unrealized potential.
Larry Laux is Senior Vice President at IFS North America, where he is responsible for growing the company’s footprint in the field service management software industry. He came to IFS as the CEO of Metrix, the leading field service management software vendor IFS acquired in 2012.He holds an MBA from the University of Wisconsin-Milwaukee and a B.A. in Physics and Mathematics from Ripon College.
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